How Much Should You Spend on Marketing in 2020? BONUS: Marketing Spend Case Studies

Alexander Porter
| 10 Min read

| Sep 09 2019

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You’re here because you want to know how much to spend on marketing.

So here’s the truth.

There isn’t a predetermined amount that you should spend on marketing in 2020 to see success.

Anyone who tells you that you should spend a predetermined figure just wants you to overspend.

So here’s what you need to take away from this article – your marketing budget should ALWAYS be relevant to your revenue.

But you’re not just here for marketing advice, you want facts and figures to get your budget ready for 2020. So we’ll tell you EXACTLY what you should be spending if you want to grow your business (and what to spend it on).

As a business owner it’s safe to say you’re busy, so here’s the short and sweet answer on how much to spend on marketing your business.

The Short Version

Every business is different. And so every marketing spend should be different.

But that doesn’t mean you have to spend in the dark. There are industry proven spending brackets to help you shape your marketing spend this year.

Businesses who want to spend on marketing typically fall into 3 categories.

1). Those who want to maintain their current level of business.

2). Those who want to grow their business

3). Those who want to accelerate the growth of their business.

Here’s how much you’ll typically need to invest in marketing based on which of those 3 categories you fall into.

However, the flaw with these general figures is that they lack variables.

What is the level of competition you face? Your current marketing methods? Your strategic goals? The age of your business? The difficulty of the market?

The answers to these questions will all influence your final marketing figure. To appear everywhere in your local suburb requires less investment than a Sydney-wide campaign that includes SEO, Google Ads and Paid Social.

At the end of the day, looking at your own revenue is only 50% of the equation. The above brackets will generally show you what’s required to maintain, grow or accelerate your business. The remaining 50% of the equation is to look outwards at your competition.

If your competition are spending $500 per week using Google Ads, you’ll know the type of figures you will need to spend to be able to compete. Similarly, if your competition are aggressively pursuing SEO and the top spot on Google, you’ll need to match their intent and aggressive spend.

At the end of the day, you should never over-extend your resources in an effort to grow. However, anything less than 7% of your total revenue will typically not yield growth while anything above 15% will typically result in rapid growth.

According to Neil Patel, top 10 Marketing Expert in the world according to Forbes, when it comes to marketing, Australian businesses should spend as much as possible.

Identify your business objectives, analyse your competitor’s strategy, and invest a portion of your total revenue relative to those variables.

Tick these boxes and you’ll have to worry less about ‘how much should I spend on marketing’ and more on ‘how should I best use my new return on investment’.

Remember, figure out which of the 3 categories you fall into and invest accordingly.

1). If you want to maintain your current level of business:Invest between 5-7% of your total revenue.

2). If you want to grow your business:Invest between 7-10% of your total revenue.

3). If you want to accelerate your growth:Invest between 10-20% of your total revenue.

The Long Version

Marketing costs vary from one business to the next.

If you’re wondering how much to spend on marketing in 2020, you’re not alone.

But when the amount you spend on your own business can have a direct impact on your bottom line, it pays to know how much to invest in marketing.

With the most recent figures predicting a 2019 collective ad spend of Australian businesses at $17.2 billion, up 4.4% on the previous year, the most successful companies in the country are investing in their own success.

With the majority of this spend occurring across digital channels, with 54.9% of total media spend, the choice to put money back into your own digital marketing is returning great dividends.

Still, the decision to invest more is not for all business owners.

If you’re not willing to set aside any amount of money to invest in marketing you should honestly ask yourself, do you really believe in the business you’ve built?

As a qualifier, if you answer yes to any of the following questions, you are an ideal candidate to see the ROI benefits of spending more on your marketing.

a). Are you struggling to generate enough leads and sales?

b). Are you taking on clients that you’d rather not work with?

c). Are you constantly looking for ways to cut costs?

Did you answer Yes to any of these questions?

If so, read on to learn how much to put into your marketing budget this year.

Marketing Budget Breakdown

The purpose of marketing is to increase awareness of your brand and bring you more customers.

If you’re not marketing your business then you’re not moving forward as a business.

This is not a popular opinion among business owners who want to get more for less.

However, it’s the unavoidable truth.

Without marketing you simply won’t get the attention, exposure and momentum to build authentic relationships with your customers, drive sales, and ultimately turn a profit.

So, ask yourself, what would happen if you spent as little on marketing as possible?

On the one hand, you would save money.

But what happens when your marketing machine stops because you haven’t paid to use the many channels available to you?

You would start to lose traffic to your website.

You would fail to generate quality leads

You might even struggle to survive from one job to the next.

Despite these damaging side-effects of paying as little as possible for marketing, that is exactly what many small business owners continue to do.

These short-sighted business owners neglect marketing. And if they add marketing costs on down the line they typically come only as an afterthought. And often for the lowest price possible.

In marketing, you really do get what you pay for. Pay peanuts and you won’t get monkeys. You’ll get cold prospects, patchy website traffic, and a lot of spare time.

Invest more in your marketing efforts and you’ll see more come back in return. You’ll see proven ways to generate leads. Proven channels to advertise your business. And proven ways to buy targeted leads that are directly measurable against your marketing spend.

The only question is, how much should you spend on your marketing each year?

How Much Do Companies Spend on Marketing? A $400 million dollar profit case study

Expedia is one of the single, largest travel companies in the world. As an aggregate website Expedia provides prices and travel information to help people find the best travel deals. They are also a business who invest a significant amount of their revenue back into their marketing efforts.

For example, in 2014 Expedia invested 48.7% of its revenue on sales and marketing.

That adds up to a $2.8 billion dollar investment.

While those figures may seem eye-wateringly high, the result was a revenue of $5.7 billion and a net profit of $400 million.

That’s some impressive return on investment.

Expedia saw the merits of investing more in marketing to see more come back, and actually repeated their success in 2017. On this occasion they broke their own record for marketing spend. So what figure did this amount to?

The Expedia Group spent 52% of their revenue on marketing and doubled their yearly revenue as a result. It’s easy to assume they can afford to invest more to profit more. But their tactics are not unique to their size. By scaling down their success, you can see your own ROI boost too.

Marketing Budgets By Industry: How to scale your business like Microsoft

Microsoft provides another proven example of investing in your own success.

As one of the largest companies in the world, Microsoft understands the cause and effect nature of investing in good marketing. In short – the more you spend on your business the greater return on investment you are likely to see.

As revenue increases, so does marketing spend. In fact, the increase in marketing spend and their increase in revenue has stayed consistent for close to two decades. By investing more, Microsoft has seen an increasingly greater ROI with a current valuation of over $800 billion dollars. And whether you own a Microsoft device or not, it’s fair to say they’ve become a global titan in the tech industry.

While both Expedia and Microsoft are examples of huge companies, the scope of their success can be distilled to become your own success by following the same core principles.

Marketing is vital for your business. This is especially true if your business is not yet at the level you see it reaching, or not yet well-known. By increasing your marketing spend you create multiple channels in which to see ROI.

That’s money out.

And profit in.

If you aren’t investing in marketing you will NEVER be successful

Maybe you have a valuable product that has the potential to positively impact the lives of your customers. Or maybe you have the best service in Australia. One that deserves more recognition. But if no one knows who you are, none of these qualities matter.

If you want your business to grow, you need to be heard of. Which means you need to be easily found by the people who want to find you. And you need to pop up in front of the people who don’t even know they’re looking for you yet. Finally, you need to keep showing up repeatedly.

Whether that exposure occurs on Google, Facebook, your own website, or in the inboxes of your customers doesn’t really matter. What matters is spending enough to effectively target at least one channel, if not more.

If you aren’t investing in one or more digital marketing channels though, your business will never be the success it could be.

For a snapshot of what your competitors are spending, consider the following industry breakdown of marketing spend as a percent of revenue.

These figures will give you insight into the figures you’ll need to invest. Remember, matching the spend of your competition is required if you want to overtake them. And with this figure established, you should look to grow your business using the digital channel you consider the most likely to be effective. For example:

If you’d like to appear on Google organically, and for the long-term, your marketing spend should include the costs for SEO.

If you’d like to appear at the top of Google, instantly, your marketing spend should include costs for Google Ads.

If you’d like to leverage a massive social media audience and direct people to your website, your marketing spend should include costs for Social Media Marketing.

The avenue of success may change but the underlying message is the same.

So if you don’t invest in marketing you will never compete with your competition in the long-term.

I’m already doing well. Do I still need marketing?

This is a common question for many business owners. If things are going well and business is running smoothly, why change?. If leads are consistently coming through the door, why do anything differently?

As all successful entrepreneurs and major Australian businesses know, investing in marketing when things are going well is the most effective way of safeguarding your business when times inevitably become tough. All businesses go through peaks and troughs.

By spending money to create and grow your brand online you establish a base from which to operate during quiet times.

The Psychology Behind Successful Marketing: Understanding the Rule of 7

Think back to the last time you visited a new restaurant. You probably walked past it multiple times. Maybe you heard a friend mention it. Then followed up their word of mouth recommendation and decided to check reviews online. And all of this preliminary research occurred before actually visiting the business.

If you only walked past it once, and never heard of it again, would you ever have decided to go and eat there?

Studies have suggested you wouldn’t have. This is where theRule of 7comes in.

On average, people engage with a brand SEVEN TIMES before committing to a purchase. And this applies to all businesses.

People rarely see a business for the very first time and decide to buy from them. Maybe word-of-mouth will get your business in front of a customer once or twice. But without inserting your business into their purchasing journey with greater regularity, you risk missing out on a conversion.

For this reason, investing in your own marketing is one of the most important aspects impacting the success of your business. It ensures you don’t lose customers at any stage of the sales funnel.

Spend too little and there will be no impact. But spend too much and you’ll overextend your resources.

So, what is the right amount to invest in marketing?

How much should I spend on marketing?

There are general rules you’ll hear thrown around like – ‘every business should spend at least 5% of their gross revenue on marketing’.

In fact, theUS Small Business Administration recommends spending 7-8% of your gross revenue for marketing and advertising if you’re trading at under $5 million per year in sales and your net profit margin – after all expenses – is in the 10% to 12% range.

However, every business has different margins and different goals. Which means yours does too. Still, as a general rule of thumb – new businesses should spend 12-20% of revenue on marketing. While more established businesses should spend 6-12% of their revenue on marketing.

3 Simple Marketing Tips to Help You Decide On Your Budget

Identifying how much to spend on marketing is a challenge for all businesses.

The thought of overreaching and stretching your business too thin as confronting.

However, through under spending, or ‘leaving money on the table’ you may see your customers move to your competition who have invested the necessary resources to create high converting websites and targeted advertising campaigns.

Your goals are different from every other business, which is why a definitive marketing spend as a single figure is impossible.

This means spending money only on objectives within your broad marketing goals.

By answering the following questions you’ll be better placed to identify your ideal marketing spend.

How much revenue do you want?

How many sales do you need to reach your revenue target?

How many leads do you need to reach the sales needed to reach your revenue target?

This final step can be done using your existing conversion rate, or an industry standard conversion rate if you are just starting out.

Two – Outline your sales funnel

A sales funnel is the steps taken by a potential customer in order to purchase your products or services.

The simplest way to understand a sales funnel is to picture an actual funnel.

Water is poured in the wide, open top and makes its way down to a single finishing point.

Through sales a similar process occurs.

Potential customers enter through the top of your sales funnel and are guided towards the finish line – a purchase.

By outlining your sales funnel you will be able to understand:

How your customers are finding you

What they need to know before they commit to a purchase

The major influences on their final decision

Once you understand each step of your funnel you can map out the costs that are currently going into each phase.

Keep track of which techniques are working in each step of your sales funnel.

This will help you identify where you could decrease spend and where you could benefit from investing more.

Step Three – Analyse your competition

Understanding your niche is a vital aspect of setting up an efficient marketing spend.

This is possible through tracking your competition.

You will need to identify:

Who the major businesses in your industry are

The methods those businesses are using to advertise

Whether they are investing in all digital channels or a select few

Your marketing spend should be sufficient to cover the cost of matching your competitor’s marketing efforts.

From this platform you will be able to see what works for your business and what does not.

This data will allow you to optimise going forward based on the marketing strategies that have been successful for both you and your competition.

When you know what’s required to match your competition, where your money would be best spent (or saved) to make your sales funnel more effective, and what your broad marketing goals are, it will be much easier to land on a financial figure that meets these three simple but important objectives.

Apple’s Marketing Masterstroke

In the mid 1990’s Apple was vastly different to the tech titan we are all familiar with today.

In understanding the importance of effective marketing, Steve Jobs instilled a proactive approach to marketing that has seen Apple commonly spend more on marketing and sales than they do on research and development.

That’s not to say you should invert your budget and pour every last cent into marketing.

But by tracking the growth of the world’s most successful companies it is clear to see the common trend between the case studies of Expedia, Microsoft and Apple – investing in marketing.

Marketing Doesn’t Have To Be Expensive

Whether you’re an emerging business or a long-established company looking to take the next step, marketing will play a pivotal role in your growth. But that doesn’t mean it has to break the bank.

By approaching your marketing needs strategically you can find the most cost-effective way to implement the most efficient changes. When it comes to your marketing, everything you learn now can be used for years to come, making the single financial outlay an upfront cost for a prolonged benefit.

So what have you learned from all this?

1). If you want to maintain your current level of business:Invest between 5-7% of your total revenue.

2). If you want to grow your business:Invest between 7-10% of your total revenue.

3). If you want to accelerate your growth:Invest between 10-20% of your total revenue.

These figures always have to take into account what your competitors are spending too. So it’s all relative.

But as long as you’re matching your competitor’s spend. And getting a return on your investment. Whatever you spend on marketing will be worth every cent.